Home annual report 2021 Report of the Management Board Our value creation model

Our business model

Key inputs

Our value creation starts with human, intellectual, financial, social and relationship capital, known as ‘inputs’:

  • Human capital | FMO has a stable and professional workforce. At the end of 2021, FMO employed 605 permanent and 107 external professionals, who are passionate about FMO’s mission. Our employees are expected to embody our values – making the difference, diversity, quality and integrity;

  • Financial capital | We are a triple-A rated bank with more than 50 years of experience in the private sector in emerging and frontier markets. This rating follows from our ownership structure (51% of shares are owned by the State of The Netherlands) and the Dutch state guarantee. It allows us to attract funding at attractive rates. Commercial investors supply capital through FMO's (sustainability) bonds;

  • Intellectual capital | We are recognized as a leading impact investor and for our in-depth knowledge of financing and ESG management in emerging and frontier markets. This knowledge makes us an attractive business partner;

  • Social and relationship capital | We have strong partnerships and networks of customers, knowledge institutes, NGOs, governments and financial partners such as commercial investors and banks. By connecting their networks and resources to our own, and by inspiring them to act, we increase our impact on the world.

FMO’s business activities

Through our business activities and interactions, FMO transforms the inputs from the above-mentioned capitals to produce outputs and outcomes that, over the short, medium and long term, create value for the organization, its stakeholders, society and the environment. 

Financing & investing | We offer long-term financing and, when possible, provide funding in local currencies to mitigate the exchange rate risk of our customers and end beneficiaries.

  • We offer direct medium and long-term loans at both fixed and variable interest rates, with a repayment grace period where needed.

  • We arrange syndicated loans by bringing together commercial banks, investors and other DFIs to raise larger financing amounts in an efficient way. FMO receives an arrangement and/or agency fee for these services.

  • We invest equity directly or indirectly (through private equity funds) or co-invest with partners. We work with fund managers and investee companies to integrate sustainability into their core operations. We provide stable, long-term capital and usually sell our stake after five to ten years. FMO receives dividends and accounts for fair value gains or losses during the lifetime of an investment. FMO’s impact consideration around private equity exits is documented in its Exit Policy.

  • We structure guarantees that meet the needs of the (end-)beneficiary, the market and the targeted creditors.

Investment management | On behalf of public parties we invest in higher-risk projects that promise substantial development impact. In addition, commercial investors have access to FMO’s expertise in impact investing in emerging and frontier markets through FMO Investment Management funds, syndicated loans and unfunded risk participation structures. We offer a selection of funds with different market-based, risk-return profiles.

Advisory and capacity building | Beyond financing, we offer advisory services and technical assistance to support customers in building profitable and sustainable businesses. This consists of support in the design and implementation of ESG risk mitigation measures, master classes and events, capacity development and sector initiatives.

Long-term value

We create long-term value by investing in our customers and working with others. We allocate capital and expertise to develop markets and raise industry standards to foster economic prosperity and decent work for all, reduce inequalities and help build low-carbon and climate-resilient economies. This is aligned with the SDGs.

FMO generates financial and development impact by offering loans, equity and (risk-sharing) guarantees to markets too risky for private investors. We scale up our impact by mobilizing third-party funds – public and private – that complement our impact goals. This includes co-development of high-impact models such as blended finance initiatives, risk-sharing mechanisms and market transformation programs.

Our impact extends beyond financing and includes positive social, environmental and economic change. We work with our customers throughout the investment process on topics such as ESG, gender, green, technology, human capital, leadership and project development. We ensure our customers comply with ESG standards and work with them to improve performance in line with mutually agreed ESG action plans. We initiate sector initiatives that enhance ESG industry standards.

Our financial products, advisory and capacity building services give our customers the means to develop sustainable businesses. These, in turn, can provide local communities access to finance, markets, energy, food and other basic goods and services as well as decent job opportunities. These are crucial to local prosperity.

At the same time, we recognize that the activities we invest in can also have a negative impact. A bank that needs restructuring to drive SME growth and job creation, could see direct jobs be turned into indirect jobs. Or people may need to be resettled for a hydro power plant, which generates a country’s renewable energy. To solve these dilemmas, we hold our customers to international ESG standards. We require them to identify and evaluate the environmental and social risks and impact of their activities and adopt a mitigation plan. We furthermore require customers to put in place a grievance mechanism and to respond to community concerns.

Throughout the lifetime of our financing, we monitor how customers progress on their environmental and social action plans and support them in building a sustainable business for the long-term. We also work towards continuous improvement of our own practices, for instance by including particular human rights in our ESG approach, improving our Know Your Customer (KYC) processes and further improving our greenhouse gas (GHG) accounting methodology.

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